Jungga Inc is considering relaxing its credit standards to increase its sales. As a result of the proposed relaxation, sales are expected to increase by 10% from 20,000units during the coming year; the average collection period is expected to increase from 35 to 50 days; and bad debts are expected to increase from 2% to 3% of sales. The sale price per unit is ₱30, and the variable cost per unit is ₱21. The firm’s required return on equal-risk investments is 25%. Evaluate the proposed relaxation and make a recommendation to the firm whether the proposed relaxation would benefit the firm. Follow the format attached. Do it in table. Make it clear and easy to understand. 1. Cost of Marginal Investment in Accounts ReceivableAnnualTotal Variable Cost of Annual SalesSalesVariable CostCurrentProposedAccounts Receivable TurnoverAR TurnoverCurrentProposedAverage Investment in Accounts ReceivableCurrentProposedCost of Marginal Investement in Accounts ReceivableAverage Investment under Proposed PlanAverage Investment under Current PracticeMarginal Investment in Accounts ReceivableCost of Funds Tied Up in Accounts ReceivableCost of Marginal Investment in Accounts ReceivableAnnual2. Cost of Marginal Bad DebtsSalesSelling CostBad DebtsUnder Current PracticeUnder Proposed PlanCost of Marginal Bad Debts3. Additional Contribution to ProfitCurrentProposedIncrease in Unit Sales under Proposed StandardContribution Margin Per UnitAdditional Contribution to ProfitEffects of Relaxation of Credit StandardsAdditional Contribution to ProfitCost of Marginal Investement in Accounts ReceivableCost of Marginal Bad DebtsNet Advantage/(Disadvantage) from the Proposed Plan

Evaluation of project proposal is done by calculating the change i.e. increase or decrease in the…

Answered: Jungga Inc is considering relaxing its…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Jungga Inc is considering relaxing its credit standards to increase its sales. As a result of the proposed relaxation, sales are expected to increase by 10% from 20,000units during the coming year; the average collection period is expected to increase from 35 to 50 days; and bad debts are expected to increase from 2% to 3% of sales. The sale price per unit is ₱30, and the variable cost per unit is ₱21. The firm’s required return on equal-risk investments is 25%. Evaluate the proposed relaxation and make a recommendation to the firm whether the proposed relaxation would benefit the firm.

Follow the format attached. Do it in table. Make it clear and easy to understand.

1. Cost of Marginal Investment in Accounts Receivable
Annual
Total Variable Cost of Annual Sales
Sales
Variable Cost
Current
Proposed
Accounts Receivable Turnover
AR Turnover
Current
Proposed
Average Investment in Accounts Receivable
Current
Proposed
Cost of Marginal Investement in Accounts Receivable
Average Investment under Proposed Plan
Average Investment under Current Practice
Marginal Investment in Accounts Receivable
Cost of Funds Tied Up in Accounts Receivable
Cost of Marginal Investment in Accounts Receivable
Annual
2. Cost of Marginal Bad Debts
Sales
Selling Cost
Bad Debts
Under Current Practice
Under Proposed Plan
Cost of Marginal Bad Debts
3. Additional Contribution to Profit
Current
Proposed
Increase in Unit Sales under Proposed Standard
Contribution Margin Per Unit
Additional Contribution to Profit
Effects of Relaxation of Credit Standards
Additional Contribution to Profit
Cost of Marginal Investement in Accounts Receivable
Cost of Marginal Bad Debts
Net Advantage/(Disadvantage) from the Proposed Plan

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